MY DAD, WHO is almost 70, recently told me that he was trying to reduce his expenses and he asked if he should still pay almost $500 every quarter for his one and only whole life insurance policy. It amounted to almost $2,000 a year as a recurring expense.
I explained to him that he has no dependents anymore and that it is OK for him to terminate the policy. He said that we would get more money from the insurance company if he should pass away while the policy was still in force.
My dad is right, of course, but I told him our family don't need the money. We are no longer dependent on him financially.
I think he might already have thought of terminating the policy but was unsure because he would have liked to leave more money for his family when he leaves this world. I persuaded him that the product had already done its job and that it had become a luxury, a "nice to have" item but not a "must have" item.
My dad terminated the policy shortly after and got back a 5 figure sum (about $50,000) as well. The payout upon death would have been under $80,000.
However, the most important thing to note is that my dad's cash flow improved by quite a bit after this. His financial burden is now lighter.
For many years now, I am a big advocate of buying insurance for the sake of insurance. Buy when there is a need. It is like buying anything on a need to have basis in life.
We might want something but we should think if there is a need for it. This is premised on the fact that money is a scarce resource for many of us. Some of us realise this while some of us don't.
Beware of marketing efforts to create an impression that something is a need for us when it could really be a want. To be fair, however, something could be a need for a person but a want for another.
• JC said ....
Since the Dad of 70 has been paying for his policy for such a long time, it would be a waste to let the policy lapse. We never know when a serious illness can strike anyone. Every body has to die one day, why give up the insurance, money is never enough! If Dad can't afford to service the payment, I would take over to pay n in the end the payout would be more than the premium paid.
My dad had the policy for 24 years, maybe 25. He bought it quite late in life. It is really quite an expensive policy, therefore, for the amount of coverage he gets.
• Stoical Keynes said...
• Derek said...